On April 11th, Ecuadorians choose a new president with critical implications for the country’s nascent mining industry.
For many, the vote is a referendum on the legacy of former president Rafael Correa, who ran the country for a decade until 2017. Riding the oil boom, he spent heavily on infrastructure and welfare but left the country’s finances in ruins.
It has been up to his successor (and former deputy) Lenin Moreno to right the ship, slashing spending and calling in the International Monetary Fund, to the opprobrium of Ecuadorians.
Though now living in exile in Belgium (Correa faces eight years in prison on corruption charges if returns), the former president still looms large over the country’s politics. Andrea Arauz, a 36-year-old economist and former minister, is Correa’s chosen candidate. Promising increased spending and rejecting much of the austerity imposed under the IMF deal, Correa’s supporters helped him win more than three million votes in last month’s first round of voting.
That’s more than a million more than his rival in the run-off, Guillermo Lasso, a former banker. Now on his third attempt to become president, he is promising pro-business reforms and corporate tax breaks to right the country’s battered economy.
Despite losing in the first round, Lasso is confident he can mop up support from millions of Ecuadorians determined to prevent a return to the corruption and authoritarianism they associate with the Correa period.
Whoever wins will have their work cut out. The Andean country, already suffering from the fall in oil prices, was almost overwhelmed in the early stages of the Covid-19 pandemic. According to Ecuador’s Central Bank, the economy may have contracted by as much as 8.9% last year.
One of the first issues on the new president’s agenda will be the reforms and fiscal cuts agreed to in September 2020 under a US$6.5 billion loan from the IMF. Both candidates have backed away from Moreno’s promise to lift value-added taxes by a percentage point to help boost government revenues, but with no clear solution of where they will find the necessary funds.
The vote also comes at a critical period for Ecuador’s mining industry. Following major reforms under Correa, mining companies have piled into the largely unexplored jurisdiction hoping to find extensions of the rich mineral belts that run up from Chile and Peru.
The launch of Ecuador’s first large-scale mining operations occurred in 2019. Lundin Gold’s (TSX: LUG) Fruta del Norte mine produced more than 200,000 ounces of gold last year. The Chinese-owned Mirador mine is already working on an expansion project to lift output beyond its current capacity of 130,000 tonnes a year of copper.
As a result, mineral exports almost tripled last year to over US$1 billion, helping to offset the decline in the price and production of oil, Ecuador’s principal export, said Maria Eulalia Silva, president of the country’s Chamber of Mines.
More projects are in the pipeline with companies expected to invest billions of dollars in new mines over the next decade.
Backed by BHP (NYSE: BHP; LSE: BHP) and Newcrest Mining (ASX: NCM), SolGold (TSX: SOLG; LSE: SOLG) is currently preparing a prefeasibility study for its Alpala project expected out later this year. With 2.66 billion measured and indicated tonnes grading 0.37% copper and 0.25 gram gold per tonne for 9.9 million tonnes of copper and 21.7 million oz. gold, the project is part of its huge Cascabel concession in the north of the country. More advanced is Ruta del Cobre, where Southern Copper (NYSE: SCCO) was due to begin work on a feasibility study by the end of last year.
Projects like these promise to bring huge investments and new jobs to Ecuador, strengthening the economy and reducing the country’s dependence on oil.
Both Arauz and Lasso highlighted the importance of mine investments to stabilize the country’s struggling finances and have committed to support mine investment to help finance their programs if elected.
“Both candidates have strong pro-mining platforms: You’d be guaranteed of government support,” Daniel Earle, CEO of Solaris Resources (TSX: SLS; US-OTC: SLSSF), told The Northern Miner. His company is rapidly transforming one of David Lowell’s final discoveries, Warintza, into a world-class project.
Miners are now hopeful that the new administration could implement further reforms to facilitate investment.
Top of the list would be reopening the door to new mineral claims, a process halted by President Moreno three years ago as the authorities were overwhelmed by interest. With mining giants including Anglo American (LSE: AAL), BHP, and Fortescue Metals (ASX: FMG) all active in the country, demand would be strong.
And following tax changes implemented by Correa to attract investment (a controversial windfall tax was eliminated), mining companies would also like to see the government introduce tax stability agreements to protect new projects from future tax hikes.
However, last month’s presidential vote also coincided with the attempt by anti-mining campaigners to use the ballot box to block the development of new projects.
This time 80% of voters in the city of Cuenca voted to ban new mining projects near water sources. One target was INV Metals (TSX: INV), whose Loma Larga project lies partly with the municipal area. Despite the vote, CEO Candace MacGibbon says the company is moving ahead with the proposed underground gold mine.
“The constitutional court which approved the referendum last year was very clear that it only applies to new projects,” she told The Northern Miner.
With a slight delay to the public consultation process, the company aims to obtain environmental approval and an investment agreement by the end of the year with production due to begin by 2023 or 2024.
However, anti-mining sentiment is not going away.
Running a very close third place in last month’s first round presidential vote was Yaku Pérez, a leader of Ecuador’s indigenous community who has been a major critic of large-scale mining projects in the country.
After being knocked out of the presidential race by just a few thousand votes, he has accused Lasso and Ecuador’s electoral commission of stealing the election from him.
As Arauz and Lasso strive to attract support in the weeks remaining to the final vote, they may be tempted to seek a deal with Perez and announce measures that attract his supporters, among whom mining is a top bugbear.